Two months ago, Nigeria marked a pivotal moment in its energy history as the Dangote Oil Refinery began producing gasoline. This milestone represents the first time in decades that Africa’s largest oil producer is refining its own crude domestically. The state-owned Nigerian National Petroleum Company (NNPC) is purchasing and distributing the refinery’s gasoline locally.
The $20 billion refinery, launched in January 2024, began gasoline production in September and is expected to achieve full operational capacity in November. With the ability to process 650,000 barrels of crude daily, the refinery can meet Nigeria’s fuel needs. By transacting in the local currency, it also reduces reliance on foreign exchange, saving crucial U.S. dollars.
However, the bold initiative has sparked resistance. Aliko Dangote, the refinery’s owner and Africa’s second-richest man, has faced opposition from what he terms Nigeria’s “oil mafia.”
“I anticipated resistance, but I didn’t realize the oil mafia was stronger than the drug mafia,” Dangote remarked during a June investment conference.
Challenging a Long-Entrenched System
Experts describe the resistance as a battle against a deeply entrenched system. “It’s a cartel,” said Emmanuel, a Nigerian oil analyst. “Dangote’s refinery disrupts their entire business model.”
Since oil was discovered in Nigeria in 1956, the downstream sector has been plagued by corruption and lack of transparency. For years, Nigeria exported crude oil to be refined abroad and imported the finished products. NNPC, central to these “oil swap” deals, began publishing its accounts only five years ago, despite oil revenues forming nearly 90% of export earnings.
The Dangote Refinery is expected to address many of these inefficiencies. Still, its debut comes amid major economic reforms that complicate its impact.
Economic Reforms and Rising Costs
In 2023, Nigeria’s President Bola Tinubu ended decades of fuel subsidies after they cost the government $10 billion in a single year. This subsidy elimination, coupled with allowing market-driven currency valuation, led to a tripling of gasoline prices to approximately $2.30 per gallon. Although still affordable compared to U.S. prices, the increase is significant for Nigerians.
These reforms aim to stabilize the economy but have intensified public frustration, complicating the environment for Dangote’s refinery.
Structural Challenges in the Oil Sector
Nigeria’s crude oil production faces additional challenges. The nation produces Bonny Light crude, a high-quality oil prized for its gasoline yields. However, large-scale oil theft disrupts production and impacts refinery operations.
According to Melee Kyari, CEO of NNPC, pipeline vandalism has rendered many of the country’s 37 depots inoperable for years. “Every molecule of product we put into some pipelines gets lost,” Kyari revealed. “We have faced tragic incidents, like the fire near Sapele, forcing shutdowns.”
These issues leave the NNPC struggling to meet the Dangote Refinery’s crude supply needs. “NNPC can only supply 300,000 barrels per day to the refinery, half of its capacity,” noted Akinosho from the Africa Oil+Gas Report.
Declining Oil Production and Industry Exodus
Nigeria’s overall oil production has fallen from 2.1 million barrels per day in 2018 to 1.3 million today. This decline is compounded by a steady withdrawal of international oil companies from the Niger Delta region over the last decade, despite the government’s push for exploration under the Petroleum Industry Act of 2021.
The Dangote Refinery has the potential to revolutionize Nigeria’s energy landscape, reducing dependence on imports and saving foreign exchange. Yet, its success hinges on resolving longstanding structural issues in the sector. Whether it will overcome these challenges remains a question only time can answer.
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